Whole of Life Insurance

Should I Get Whole of Life Insurance?

Whether or not you need Whole of Life Assurance depends on your personal circumstances.

If you want a guaranteed lump sum to leave your loved ones after your death, or meet other obligations such as an inheritance tax bill, then Whole of Life cover might be right for you.

Whole of Life Insurance or Term Insurance?

When comparing Term Insurance and Whole of Life Insurance, you’ll find that Whole of Life Assurance policies are generally more expensive than Term Insurance policies because the benefit is guaranteed.

Payouts also tend to be smaller with Whole of Life cover. The ABI revealed the average Whole of Life policy claim in 2017 totalled £4,511.16, compared to £78,323.35 for Term Life Insurance policies, although this isn’t always exclusively the case.

Which is best for me?

Each type of life cover is typically designed to protect very different liabilities.

• If you have a liability which is being paid off over time or has a finite shelf life such as a mortgage, car loan etc., then Term Life Insurance is probably a better option.
• If there is a liability which will arise on death regardless of the timeframe such as funeral costs or an inheritance tax bill, Whole Life Insurance is usually the more suitable option.

Types of Whole Life Insurance

Whether it be for funeral expenses or a potentially large Inheritance Tax liability there are a number of different uses for whole of life insurance which we have detailed below.

Funeral Insurance and Covering Small Debts

One of the most common uses for Whole of Life Cover is to provide Funeral Insurance.

This ensures a lump sum is paid out on your death to cover funeral expenses so your loved ones don’t have to worry about taking care of the cost or deducting it from their inheritance.

Over-50s Life Insurance plans are typically Whole of Life Cover used for funeral expenses, although some people may also use such policies to provide a small legacy to family or cover minor debts.

It’s worth considering that your estate is usually required to cover any debts held solely in your name after you die, providing there’s enough money contained in it to do so. (Note that the rules are different for debts/mortgages in joint names.)

Assuming you’ve left a solvent estate, debts are usually paid first and your beneficiaries only get the value of your estate net of any debt payments.

Some people use a Whole of Life Insurance policy to cover these small debts, although it’s worth noting that, over time, the premiums of such policies can rise to be worth more than the eventual benefit.

When looking at Life Cover it is often worth comparing a standard Life Insurance policy with one designed specifically for Over-50’s.

If you are in good health you may well be better off with a standard Life Insurance policy.

Michael Barrow
Independent Protection Expert

Inheritance Tax Insurance

When an individual dies, inheritance tax is due on the value of their estate above a set threshold. It takes a 40% bite out of anything you want to pass on to the next generation above this limit.

Many families are facing an inheritance tax bill thanks to rising house prices, so it’s becoming increasingly common to use Whole of Life Assurance to cover these bills.

Where the estate has sufficient liquid funds to cover the inheritance tax bill, HMRC will usually grant the estate’s executor(s) access to settle the bill with a bank transfer from the deceased’s account(s).

However, these days most estates don’t have sufficient liquid funds available, commonly because a house makes up the bulk of the estate.

In such circumstances, executors and/or beneficiaries may have to pay out of their own pocket and attempt to recoup the money from the estate afterwards. Bank loans are also commonly available for beneficiaries in this situation.

Getting Whole of Life Cover to use as inheritance tax insurance firstly involves calculating how much inheritance tax you might have to pay.

This can be done using our free Inheritance Tax Calculator. Once you have a good idea of your potential liability, you can use this figure to compare Whole of Life Insurance quotes.

Samantha Haffenden-Angear
Independent Protection Expert at Drewberry

Writing Whole Life Insurance into Trust

Writing Whole of Life Insurance Cover into trust will ensure that not only will the payout be tax-free, but it can also provide your beneficiaries with a lump sum that’s outside your estate and therefore not tied up in probate.

This money can be used to pay the taxman so your estate can be released to the beneficiaries. That way, they can inherit what you always meant them to have.

Gifts Inter Vivos Insurance

A Gifts Inter Vivos Insurance policy isn’t Whole of Life Insurance. Rather it’s a set of term Life Insurance policies to cover the inheritance tax liability on any large gifts you make whilst you are still alive.

When you make a gift to an individual, assuming you’ve made no other lifetime gifts or transfers previously, the gift only falls outside your estate if you live for 7 years – and potentially up to 14 years – after making it.

During that 7 year period, inheritance tax may be due on a sliding scale on the gift should you pass away during this time.

The below table provides the rate of inheritance tax due on potentially exempt transfers (PETs) you make during your lifetime over a 7 year period.

This covers most gifts to individuals and gifts into certain trusts (although the majority of gifts into trusts will be chargeable lifetime transfers [CLTs] and therefore have different rules).

Whereas inheritance tax usually has to be paid out of the value of the estate, inheritance tax on gifts inter vivos must be paid by the recipient of your gift.

That means your gift could land someone with an inheritance tax bill several years after you’ve made it, when the money may already be gone.

The amount they would have to pay tapers down depending on how long you live after making the gift, so a set of decreasing term Life Insurance policies – known as Gifts Inter Vivos Insurance – could cover the potential inheritance tax liability on gifts you’ve made.

Setting up a series of interlinked policies over a 7 year period can be complicated, as can working out any potential inheritance tax liability on the gifts in the first place.

For this reason, we highly recommend speaking to an expert on the subject – please don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

Victoria Slade
Independent Protection Expert at Drewberry

How Much Does Whole of Life Insurance Cost?

Whole of Life Assurance tends to be more expensive than Term Insurance because the payout is guaranteed.

As with other types of insurance, Whole of Life cover costs more to buy the older you are when you take out the policy.

Over 50’s Cover

• For over-50s cover, a subset of Whole of Life Insurance, many companies offer guaranteed acceptance under a certain age, such as 80, without the need for a medical.
• Guaranteed over-50s plans don’t tend to be linked to the policyholder’s health as Term Insurance tends to be, which can make them more expensive as there is more unknown risk for the insurer.
• ‘Over-50’s’ plans tend to have lower maximum benefits, and most require insureds to survive for a minimum period before they pay out.

The cost of Whole of Life Insurance is typically more expensive than Term Insurance because there’s no term limit.

The risk to the insurer is assured, because as long as you keep paying the premiums and don’t otherwise violate the terms of the policy, there’ll be a definite payout at the end of the policy (i.e. when you pass away).

Beware Reviewable Permanent Life Insurance Premiums!

In the past, many Whole of Life Insurance policies were sold with reviewable premiums. This means the insurer is entitled to increase premiums to cover their increased costs over the life of your policy.

Factors the insurer may use to increase reviewable premiums include:

• Inflation
• Investment performance
• Reinsurer fees
• The level of future claims the insurer expects to pay
• The insurer’s own expenses and taxes
• The insurer’s need to hold a capital buffer/financial reserves.

These can all result in significantly increased premiums over the life of the policy at each policy anniversary date through no fault of your own.

Whole of Life Insurance Calculator

Use our Whole of Life Insurance Quote tool to calculate Whole Life Cover premiums for your specific needs and circumstances.

As mentioned, this will largely depend on the sum you’re looking to insure, so you must first work out how much Whole of Life Insurance you need to buy.

If you’re using it to cover funeral costs or small non-mortgage debts, this should be fairly easy. Simply get a quote from a funeral director for your funeral expenses or calculate the amount of debt you have and set your Whole of Life Insurance policy to match this.

Inheritance Tax Insurance Calculator

Calculating Permanent Life Insurance to cover an inheritance tax liability is trickier, because you have to try and estimate how much your estate will be worth when you die and therefore how much inheritance tax might be due.

A good first step is to use our free Inheritance Tax Calculator to add up all of your assets and calculate your potential inheritance tax liability.

Once you’ve worked that out, you’re in a better position to understand the sum you may want to insure to protect your loved ones on your death.

Your inheritance tax liability could rise, for instance as house prices increase or you yourself inherit assets.

For this reason, most Whole of Life Insurance providers allow you to increase your cover if the value of your estate rises or your liability grows thanks to changes in government legislation.

Sam Barr-Worsfold
Financial Adviser at Drewberry

Will I Need a Medical for Whole of Life Insurance?

This depends on a number of factors, although a medical is more likely to be a requirement the more you’re looking to insure. If you do require a medical, poor health may increase the cost of insurance.

However, broadly speaking there’s often no medical for Whole of Life Insurance, especially when you’re looking to insure relatively small amounts.

Many providers, particularly those offering guaranteed over-50s plans, won’t even require you to take a telephone health questionnaire to get Whole of Life Cover.

Essentially, that’s because providers realise that they are insuring against an event that will definitely happen in the future, regardless of how healthy or unhealthy you are.

As such, premiums tend to be higher across the board to take account of the more lenient medical requirements to obtain cover.

Age Limit on Whole Life Insurance

The maximum age for Whole of Life Insurance varies depending on insurer. The age limits on Whole of Life cover are generally higher than for Term Insurance, with it being possible to find cover in your 70s and even 80s.

This is why the policies are so attractive for older individuals looking to use Life Assurance as part of their estate planning.

How is Whole of Life Insurance Taxed?

Without proper estate planning, the payout from any Life Insurance policy becomes part of your estate when you die.

HMRC usually charges inheritance tax at 40% on the proportion of an estate that rises above a set threshold. This will include your Life Insurance payout, potentially reducing it to less than the figure you initially required.

Writing Whole of Life Cover into Trust

To avoid an inheritance tax charge on the payout, it’s recommended you write a Whole of Life Assurance policy into a trust for your loved ones, so it never becomes part of your estate and subject to taxation.

Paying Whole of Life Cover into trust can also leave your family with ready cash to pay any inheritance tax liability your estate might attract after your death.

Compare Best UK Whole of Life Insurance Providers

	Aegon Providing you meet Aegon’s eligibility criteria, you’ll automatically be offered £1 million of free Whole of Life Cover for up to 90 days while your policy is processed. Minimum entry age: 18 Maximum entry age: 84 Maximum sum assured: Unlimited
	AIG AIG’s Whole of Life Insurance includes access to the company’s Best Doctors service, a second medical opinion service to help you get the right treatment and care. Minimum entry age: 17 Maximum entry age: 84 Maximum sum assured: £25 million (with consideration for sums above this amount on a case-by-case basis)
	Royal London Providing you’re under the age of 70, you can increase your cover by the lower of £200,000 or half the sum assured if you face an inheritance tax increase due to a larger estate or changes in government legislation. Minimum entry age: 18 Maximum entry age: 89 Maximum sum assured: Unlimited
	Scottish Widows Scottish Widows’ Whole of Life Insurance doesn’t include a terminal illness benefit. However, Scottish Widows does have one of the largest permitted increases in cover if you see your inheritance tax liability rise – you can increase it by the lower of £500,000, 50% of the sum assured or the increase in potential inheritance tax liability on the estate. Minimum entry age: 18 Maximum entry age: 83 Maximum sum assured: £25 million for level cover and £15 million for increasing cover (maximum increasing cover limit is £30 million)
	Vitality Vitality’s policy comes with the same unique features as other VitalityLife products, including the ability to add options to your plan that could see reduced premiums as a result of healthy living or allow you to build up points towards various lifestyle rewards, such as fitness trackers or free cinema tickets. Minimum entry age: 16 Maximum entry age: 74 Maximum sum assured: £20 million
	Zurich Zurich’s Whole Life Cover includes a terminal illness benefit as standard, although if you want to include waiver of premium this is an optional extra, unlike some other providers where its included as standard. Minimum entry age: 16 Maximum entry age: 83 Maximum sum assured: Unlimited

Expert Whole of Life Insurance Advice

As independent Life Insurance advisers, we’re on hand to answer any questions and provide guidance to ensure you can make an informed decision when considering Life Insurance.

If you’re looking for Whole of Life cover as part of estate and inheritance tax planning, the expertise of our advisers could be invaluable in helping you and your beneficiaries mitigate any potential liability.

Why Speak to Us?

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3746 and growing independent client reviews rating us at 4.92 / 5.
• Benefit from the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

We’d always recommend getting advice when buying cover particularly when it comes to inheritance tax planning as mistakes can be very costly.

We’re just on the other end of the phone, so please don’t hesitate to contact us on 02084327333.

Tom Conner
Director at Drewberry